Safe Bets in Troubled Times

Stocks may continue to tumble because of the credit crunch. But investors should continue to hold large-company stocks with little debt and strong overseas sales.

After a week of hyperventilating, take a deep breath. Despite the year's second-worst day of trading on August 9, the Dow Jones industrials, Standard & Poor's 500-stock index and the Nasdaq all ended the week slightly higher than where they began. The volatility may point to a correction, but the bears won't feast for long.

Hedge funds sparked the most recent bout of volatility. Jittery investors made a run on these funds, which prompted fund managers to sell highly leveraged assets to generate cash to pay redemptions. Such transactions rippled through the capital markets. That caused central banks worldwide to inject billions into the markets to keep them liquid. But because hedge funds are loosely regulated investment pools, no one has a clear idea of how exposed these funds are to subprime mortgages.

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Contributing Editor, Kiplinger's Personal Finance